This week, multiple news items on the raw material front successively boosted market sentiment, with finished steel prices rebounding from lows in phases and generally showing a bottoming-out trend. At the start of the week, the weak fundamentals of finished steel were hard to change, and ferrous metals prices had overshot to the bottom. Subsequently, however, coal mines in Shanxi were affected by rainfall, and circuit failures led to production suspensions at some mines, sentimentally driving ferrous metals prices to bottom out. Mid-week, there were rumors of a 48-hour strike at BHP, with limited short-term tangible impact, but sentiment...

[SMM Cobalt & Lithium Morning Call: Raw Material Prices Diverge, Industry Demand Maintains Structural Support] This week, industry chain prices showed divergence. Lithium ore, lithium chemicals, nickel chemicals and cobalt products were overall under pressure. Downstream procurement remained focused on long-term contract cargo pick-ups and essential restocking, and the market still held expectations of increasing supply and price declines in the long term. Cathode material side, ternary system prices pulled back along with raw material costs, while LFP and iron phosphate strengthened slightly, supported by order growth and cost support. Anode and separator markets held stable overall, and electrolyte moved up, driven by rising additive and solvent prices. Demand from energy storage, commercial vehicles and markets outside China maintained good performance, supporting continued growth in the industry's production schedules, but recovery on the consumption side remained relatively slow.

At the beginning of this week, the overall industry chain was relatively weak, with the price center of electrolytic metals, intermediates, and salts continuing to decline. During the traditional off-season, downstream purchasing was mainly small-scale, just-in-need buying. Cost support from virgin materials remained, but recycled materials, low-priced older stocks, and re-dissolution routes persistently depressed market psychological price levels, intensifying price negotiation divergences between upstream and downstream. The ternary cathode precursor and ternary cathode material markets weakened simultaneously due to falling raw material prices. August orders showed steady growth, but consumer-side demand had yet to recover significantly. The supply-demand balance for LCO remained weak, and short-term prices were expected to remain stable.

Recently, CAAM released the automobile production and sales data for June 2026. In H1, China's automotive industry continued its transformation and upgrading trend, with the traditional internal combustion engine vehicle market further stabilizing and NEV maintaining growth. From January to June, NEV production and sales reached 7.438 million and 7.446 million units, respectively, both showing YoY growth, with pure electric vehicle sales accounting for 67%. Against the backdrop of an overall positive NEV market, hydrogen fuel cell vehicles performed relatively weakly. In H1, China's hydrogen fuel cell vehicle production and sales were approximately 500 and 700 units, respectively, down 59.9% and 50.1% YoY. In June alone, production and sales were about 100 and 50 units, with YoY declines of 46.8% and 78.9%, indicating that market promotion remains under significant pressure. There is a mismatch between early-stage investment and long-term returns. Currently, hydrogen transportation has formed an industry chain covering hydrogen production, storage and transportation, refueling, and end-use applications, but various constraints still exist at each stage. At the hydrogen production end, the construction of hydrogen refueling station infrastructure usually requires high investment, with a long payback period. Affected by insufficient hydrogen supply sources and network density, some stations have low operational efficiency. The storage and transportation segment has yet to form a mature and unified refueling system, and coupled with generally high costs of hydrogen production, storage, transportation, and refueling, the economic viability of end-use applications still needs further verification. Industry insiders believe that the slowdown in fuel cell vehicle development is the result of multiple factors, including technology, costs, supporting facilities, and market demand. High hydrogen production and refueling costs make fuel cell vehicles less economical to purchase and operate than internal combustion engine vehicles and pure electric vehicles. High land costs in some large cities also increase the difficulty of site selection and construction for hydrogen refueling stations. Meanwhile, the limited number of supporting facilities and insufficient station profitability further constrain vehicle promotion. The industry has not yet achieved economies of scale. Profit pressure also reflects the development challenges of the hydrogen fuel cell industry. Take the domestic hydrogen fuel cell industry leader Yihuatong as an example: the company's net loss attributable to shareholders of the parent company in 2025 was 671 million yuan, with the loss further widening compared to 2024. The enterprise stated that the prolonged losses were mainly affected by factors such as the early-stage commercialization characteristics of the hydrogen fuel cell industry and changes in the business environment. The industry is still in the initial stage of development, without yet forming large-scale market effects. Market orders are relatively small, competition is intense, and product prices remain under pressure. At the same time, high-tech industries require long-term R&D investment, and the conversion of technological achievements into commercial returns also takes a certain period. It is widely believed within the industry that breaking the bottleneck in the large-scale development of hydrogen fuel cell vehicles requires joint efforts from all parties in the industry chain. Enterprises should maintain a dynamic balance between operation and R&D, continuously optimize cost structures, and seek breakthroughs in technology expansion and application scenario innovation. At the same time, the industry must follow the laws of development and avoid an imbalance between long-termism and short-term market enthusiasm.

From the historical profit trend of cold-rolled and hot-rolled steel, the spot profit of cold-rolled products was higher than that of blast furnace HRC in most cycles. However, from the end of 2025 to H1 2026, the profit centers of both cold-rolled and HRC shifted downward simultaneously, and the gap between their profit curves continued to narrow. The traditional processing premium of cold-rolled over HRC contracted significantly. At present, the spot profits of both cold-rolled and HRC are moving sideways around the break-even line, and overall industry profitability has declined markedly. On the one hand, raw material costs have shown strong resilience, supporting the bottom of finished steel prices. On the other hand, downstream end-use demand has continued to weaken since the start of this year, making it harder to support cold-rolled prices. Meanwhile, steel mills have taken more HRC orders than cold-rolled orders this year, and firm HRC prices have continuously squeezed the processing income of cold-rolled steel, steadily narrowing the profit gap between the two. Looking ahead to H2 2026, cold-rolled and HRC profits are likely to consolidate on a subdued note overall. Cold-rolled steel is still expected to retain a modest processing premium, but it will be difficult to see a repeat of the significant profit rises from 2023 to 2024. On the supply side, blast furnaces face expectations of seasonal maintenance, which can periodically shore up HRC supply. In the persistently low-profit environment for cold-rolled steel, some mill production lines are willing to voluntarily reduce output, potentially providing some support for cold-rolled processing fees. Demand will become the core variable driving profits. In H2, traditional manufacturing typically sees a seasonal recovery during the "September-October peak season," and downstream automobile and home appliance industries are expected to sprint toward their full-year production plans, providing some demand support. However, the extent of the recovery in downstream end-use demand this round remains uncertain. In the short term, absent stronger policy support to stabilize growth, the recovery pace of downstream demand is likely to be gradual, and cold-rolled and HRC profits will most likely continue to consolidate near the break-even line. On the raw material front, iron ore has seen no particular trend and is broadly fluctuating in line with steel. The second round of coke price reductions has been implemented, weakening cost support and leaving room for cold-rolled and HRC profit recovery. At the same time, if downstream users show strong willingness to stockpile for the peak season starting in late August, with orders being released continuously, demand support may lead to a phased recovery in cold-rolled profits and a renewed widening of the price spread between cold-rolled and HRC. If the manufacturing recovery falls short of expectations, profits of both cold-rolled and HRC will come under pressure simultaneously. Going forward, close attention should be paid to auto production and sales data, downstream order booking, and raw material price movements, and one should stay vigilant against the risk of profits falling short of expectations if the peak season fails to materialize.

Historical cold-rolled and hot-rolled profitability data shows cold-rolled spot profit exceeded that of integrated hot-rolled coil in most cycles. However, from end-2025 to H1 2026, profit hubs for both shifted lower in tandem, their curves converged persistently, and cold-rolled's traditional processing premium over hot-rolled contracted markedly. At present, spot profits for both hover near break-even within a narrow range, and sector profitability has notably declined. On one side, raw material costs have been resilient, underpinning finished steel price floors; on the other, end-use demand has weakened continuously since the start of this year. Cold-rolled prices have struggled to hold, while steel mills have taken better hot-rolled coil orders than cold-rolled this year, with firm hot-rolled prices squeezing cold-rolled processing margins and narrowing the profit gap further. Looking to H2 2026, cold-rolled and hot-rolled profits are expected to consolidate on a subdued note overall. Cold-rolled is still likely to retain a small processing premium but will struggle to replicate the sharp profit upswings of 2023-2024. Supply side, seasonal maintenance expectations at integrated blast furnaces could intermittently floor hot-rolled coil supply; under persistently low profits, some cold-rolled lines at mills are showing a willingness to voluntarily cut production, which may provide a degree of support for cold-rolled processing fees. Demand will be the core variable steering profit direction. Traditional manufacturing is expected to undergo a seasonal recovery in the September-October peak season during H2, with downstream auto and home appliance sectors anticipated to sprint toward full-year production plans, offering some demand support. Yet uncertainty remains over the height of this round's end-use demand recovery. In the short term, absent strong pro-growth policies, the downstream demand recovery pace is likely to be moderate, and cold-rolled and hot-rolled profits will probably continue to consolidate near the break-even line. Raw material side, iron ore lacks a distinct narrative and broadly tracks finished steel price fluctuations. The second coke price cut has landed, easing cost support and creating room for profit recovery. If downstream peak-season stockpiling sentiment turns firm from late August and orders flow steadily, cold-rolled profits could see a phased recovery supported by demand, and the cold-rolled vs hot-rolled price spread could re-widen. Should the manufacturing recovery fall short of expectations, both cold-rolled and hot-rolled profitability will come under pressure simultaneously. Going forward, focus on auto production and sales data, downstream order status, and raw material price fluctuation trends; be alert to profit disappointments driven by a peak-season letdown. Data Source Statement: All data in this report, other than publicly available information, are derived from public information (including but not limited to industry news, seminars, exhibitions, corporate financial reports, broker reports, National Bureau of Statistics (NBS) data, customs import and export data, and various data published by major associations and institutions), market communication, and SMM’s internal database models. They are produced through comprehensive analysis and reasonable inference by the research team, are for reference only, and do not constitute decision-making advice. Shanghai Metals Market reserves the right of final interpretation of this statement and the right to adjust and amend its content based on actual circumstances.